Rising demand for DDR3 DRAM is good for users because the chips use 60 percent less power than predecessors but offer almost twice the bandwidth

Demand for the next generation DRAM chip, DDR3 (double data rate, third generation), has spiked recently as systems makers turn to it for increased power efficiency and performance.

Increasing demand for the chips could boost their share of the market to as much as 30 percent by the end of this year, analysts say, and they could replace DDR2 (DDR, second generation) as the market mainstream early next year.

Rising demand for DDR3 DRAM is good for users and companies because the chips use as much as 60 percent less power than their predecessors while offering almost twice the bandwidth, according to Sylvie Kadivar, associate director of DRAM marketing at Samsung Semiconductor.

A bonus: DDR3 is already cheap, and the faster production increases, the quicker prices for the chips will come down even more.

The power savings attributes of DDR3 are meaningful for mobile devices such as laptops and can help cut electricity bills in corporate server farms. In fact, new thin laptop computers based on CULV (consumer ultra-low voltage) chips from Intel and new servers based in Intel Xeon 5500 processors are a few of the systems driving the trend toward DDR3, according to investment bank Credit Suisse.

At Computex Taipei 2009 in early June, nearly all of the CULV laptop designs and most of the designs for PC motherboards on display that will be out later this year used DDR3.

Samsung sees DDR3 knocking DDR2 out of first place in the DRAM market by the end of the first quarter of next year with over a 50 percent share, while Jim Handy, an analyst at market researcher Objective-Analysis, believes the 50 percent figure won't be breached until the third quarter next year.

Price is one issue driving DDR3. DRAM prices have dropped so low that most chip makers lose money on every chip sold. The price declines started two years ago after a frenzy of factory building led to overproduction of the chips. Despite bankruptcy filings and production cutbacks on the part of companies, DRAM prices haven't changed much. The global recession has hurt demand for new PCs, servers and laptops, curbing any advantage caused by production cutbacks.

But DDR3 prices have increased recently as the chips find their way into servers and new systems, according to chip distributor Converge, in its monthly market newsletter.

Mark Adams, vice president for worldwide sales at Micron Technology, said during the company's quarterly earnings conference call that demand for DDR3 increased 70 percent quarter-over-quarter and that DDR3 represented about a quarter of Micron's overall DRAM sales.

Global spot market prices for DDR3 also reflect rising demand for the chips.

DDR3 prices spiked last week to between $1.50 to $1.70 per 1Gb (gigabit) chip, and the price will likely continue to rise in July, according to DRAMeXchange Technology, which operates an online clearinghouse for the chips. Conversely, the price of DDR2 has fallen to $1.00 per 1Gb chip, from $1.34 in May.

The decline in DDR2 prices may mark a good time for people to increase the amount of DRAM in their PCs. Once DDR3 becomes the market mainstream, prices for DDR2 chips may actually go up because there will be fewer chips available.

The global DRAM situation could be much more difficult to predict later this year due to the launch of Microsoft's new operating system, Windows 7.

Credit Suisse believes Windows 7 will "trigger a significant PC upgrade wave as initial tests suggest that many of the issues found in Vista are resolved in Windows 7," and notes that corporate PCs are overdue for a hardware upgrade.

"We estimate that the average age of corporate PCs is over 3 years old," the investment banker said in a recent report.

DRAM prices usually go up if PC demand rises because PCs use more DRAM than any other device, though mobile DRAM has found its way into more and more mobile phones in recent years.

What's more difficult to say is what impact higher PC demand may have on DRAM demand. Although initial information from Microsoft and some PC vendors indicates that hardware requirements for Windows 7 will be similar to Windows Vista, some analysts see things differently.

"We see 512MB of DRAM being suitable for Windows 7 PCs," writes Oliver Campbell, analyst at CLSA Asia Pacific Markets, noting that 512MB is half of the average amount of DRAM in mini-laptops and much lower than the average 2.4GB per box average in PCs. "Windows 7 low-hardware requirements give no incentive for DRAM per box to increase," he says.